Definition
Vertical integration refers to the organization of successive stages of production or distribution – i.e., a supplier and a retailer – within a single firm. Two aspects are relevant in the definition of vertical integration: (i) the ownership or control by the same firm over the successive stages of production or distribution process and (ii) the substitution of external with internal exchanges.
Vertical integration can be full or partial. Under the first aspect, i.e., ownership or control, integration is full (partial) if the firm acquires all (part of) the shares in a vertically related firm. Under the second aspect, i.e., the internalization of exchanges, full vertical integration means that the entire output of an upstream unit is employed in a downstream unit or the entire quantity of an intermediate input in the downstream unit is obtained from the upstream process, while partial integration means that most of the output of the upstream unit is employed as most of the...
References
Arrow KJ (1975) Vertical integration and communications. Bell J Econ 6(1):173–183
Carlton DW (1979) Vertical integration in competitive market under uncertainty. J Ind Econ 27(3):189–209
Carlton DW, Perloff JM (1981) Price discrimination, vertical integration and divestiture in natural resource markets. Resour Energy 3:1–11
Coase R (1937) The nature of the firm. Economica 4:386–405
Dixit A (1983) Vertical integration in a monopolistically competitive industry. Int J Ind Organ 1:63–87
Green J (1986) Vertical integration and assurance of markets. In: Mathewson, Stiglitz (eds) New developments in the analysis of market structure. MIT Press, Cambridge, MA
Grossman SJ, Hart O (1986) The costs and benefits of ownership: a theory of vertical and lateral integration. J Polit Econ 94:691–719
Hart O, Moore J (1990) Property rights and the nature of the firm. J Polit Econ 98:1119–1158
Hart O, Tirole J (1990) Vertical integration and market foreclosure. Brook Pap Microecon: 205–276
Katz ML (1987) The welfare effects if third degree price discrimination in intermediate good markets. Am Econ Rev 77:154–167
Klein B, Crawford RG, Alchian AA (1978) Vertical integration, appropriable rents, and the competitive contracting process. J Law Econ 21:297–326
McKenzie LW (1951) Ideal output and the interdependence of firms. Econ J 61:785–803
Ordover JA, Saloner G, Salop SC (1990) Equilibrium vertical foreclosure. Am Econ Rev 80:127–142
Perry MK (1978) Vertical integration: the monopsony case. Am Econ Rev 68:561–570
Perry MK (1984) Vertical equilibrium in a competitive input market. Int J Ind Organ 2:159–170
Salop SC, Scheffman DT (1983) Raising rivals’ costs. Am Econ Rev 73:267–271
Salop SC, Scheffman DT (1987) Cost-raising strategies. J Ind Econ 36:19–34.
Simon HA (1955) A behavioral model of rational choice. Q J Econ 69(1):99–118
Spengler JJ (1950) Vertical integration and antitrust policy. J Polit Econ 53:347–352
Stigler GJ (1951) The division of labor is limited by the extent of the market. J Polit Econ 59:185–193
Telser LG (1960) Why should manufacturers want fair trade? J Law Econ 3:86–105
Tirole J (1988) The theory of industrial organization. MIT Press, Cambridge, MA
Vernon J, Graham D (1971) Profitability of monopolization by vertical integration. J Polit Econ 79:924–925
Williamson OE (1971) The vertical integration of production: market failure considerations. Am Econ Rev 61:112–123
Williamson OE (1975) Markets and hierarchies: analysis and antitrust implications. Free Press, New York
Williamson (OE) (1985) The economic institutions of capitalism. Free Press, New York
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 Springer Science+Business Media, LLC, part of Springer Nature
About this entry
Cite this entry
Gianfreda, G. (2020). Vertical Integration. In: Marciano, A., Ramello, G. (eds) Encyclopedia of Law and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7883-6_672-2
Download citation
DOI: https://doi.org/10.1007/978-1-4614-7883-6_672-2
Received:
Accepted:
Published:
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4614-7883-6
Online ISBN: 978-1-4614-7883-6
eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences
Publish with us
Chapter history
-
Latest
Vertical Integration- Published:
- 05 August 2020
DOI: https://doi.org/10.1007/978-1-4614-7883-6_672-2
-
Original
Vertical Integration- Published:
- 12 June 2017
DOI: https://doi.org/10.1007/978-1-4614-7883-6_672-1